Tuesday, August 30, 2011

Spain targets rich taxpayers

Or does it? Spain's government was reported to be looking at ways of getting more tax from its wealthiest citizens last week. It's looking at ways of getting its budget deficit down to 6% this year. The inspiration is said to have come from France where a 3% tax surcharge was imposed on incomes over €500,000 recently.

One idea being mooted is a return of the wealth tax ("Patrimonio") abolished in 2008. This was an extra tax based on assets like investments and houses rather than income.

Because of reasonably generous tax allowances the tax didn't raise very much money - about €2.1 billion in its final year - and was quite an intrusive and inefficient tax. Its abolition was widely celebrated even though most of the wealth tax was paid by the very wealthy at the top of the pile.

One group that would be badly hit by a return of the wealth tax in its old form would be non resident property owners. Holiday home owners are already obliged to submit a tax return and pay income tax based on the rateable value of their house or apartment (see Spanish Tax Form 210 for details). Up until 2008 they also paid wealth tax which doubled or trebled their liability partly because they were not entitled to the same deductions as residents.

Hopefully it won't come to that. Spanish newspaper La Razon in an article entitled "The government parks taxes on high incomes" is pretty sure plans were discussed but then shelved due to differences of opinion within the governing PSOE. It categorically ruled out the return of the wealth tax or an increase in taxes on very high incomes (Spanish tax rates are already rising to 45% this year) although some other newspapers hedged their bets. Other articles this week have talked about the wealth tax returning but with a much higher threshold for paying it e.g. minimum assets of €600,000 or €1,000,000.

Monday, August 22, 2011

Spain slams the door on Romanian immigrants

In a surprise move last week the EU said it would allow Spain to restrict the number of job-seeking immigrants from Romania. This is the first time any EU country has sought to keep out workers from another EU country since Europe introduced an open borders policy. This is hardly "Fortress Spain" - the nearly 900,000 Romanians already in the country will be unaffected and the restrictions will last only until 2012. Is Spain right to take this step? Should Britain follow?

The justification given for the move is that the number of Romanians "was distorting the labour market". Spain's unemployment rate is now 21% and its job market cannot supply enough jobs for locals never mind the 5 million foreigners in the country legally plus who knows how many illegally. Already 30% of the Romanians in Spain are unemployed.

Sounds like an open and shut case but there is more to it. During the boom years immigrants were welcomed with open arms by the construction and agricultural sectors particularly when they were doing jobs Spanish nationals were turning their noses up at. They were not exactly "stealing" Spanish jobs. Also there is more than a hint of scapegoating about the move. Spanish unemployment has always been high because of a dysfunctional system which discourages legal job creation and because of the disastrous consequences of joining the euro, not because immigrants came to make an honest living during the boom.

While I think it is a classic case of “too little too late” I think Spain is right to seek to limit the inflow of Romanian jobseekers. By all accounts the benefit system is very sketchy and ungenerous in Romania and wages for those in work very low. That explains why so many are prepared to travel throughout Europe in search of a better deal but it is hardly fair to local jobseekers in countries where jobs are scarce anyway. And Spain has no right to send back any surplus migrant workers so as their economy has soured they have been left with hundreds of thousands of foreigners on benefits at a time when they are under massive pressure to reduce state spending.

As for Britain similar questions have been asked for years about how this free movement of labour through the EU is supposed to work when some countries have much more generous welfare systems and more open labour markets than others. The result for the UK has been that almost all jobs created in the last decade have gone to foreigners, mainly Eastern Europeans, and there has been a massive strain on public services and housing.

But the answer isn’t to blame immigrants or necessarily to place limits on their numbers particularly when they are often taking up jobs that locals will not do. Root and branch reform of the benefits system should come first, particularly the areas that are most abused and reduce the willingness of people to work, like housing benefit and incapacity benefits.

From our website: Spanish non resident tax

Monday, August 15, 2011

How to ease the pain of rising energy prices

The last few years have been very unkind financially to anyone with savings in building societies or bank deposits. With rates slashed to the 2-3% mark (before tax) the value of these savings has steadily declined as inflation has risen. This mix of rock bottom returns and high inflation is set to continue for years.

Worse for many people who rely on these savings has been the rising cost of energy - petrol prices and domestic fuel bills have risen much faster than inflation. What to do?

Ever helpful the big 6 energy suppliers have been offering fixed price deals which fix your tariffs for up to two years. A bit rich when they have just raised them 20% - "we're putting up your bills and would you like to lock into paying these rates for two years?". You would rue this if there is a recession and energy prices fall again even if just temporarily (and they have been falling recently).

A better option might be to buy shares in a couple of energy companies. An example would be Royal Dutch Shell B shares (RDSB:LSE). The share price has fallen recently below £20 (it has been as low as £17.68) at which levels the dividend yield is nearly 6% which could be received tax free if you open a self-select ISA. That yield is likely to grow in the coming years as Shell benefits from rising prices for oil and natural gas (which makes up half its output) and a growth program of investment in such areas as unconventional oil extraction and liquefied natural gas projects. The company's most recent set of results show profits up 74% with strong enough cashflow to support the dividend, finance the investment program and leave a very strong balance sheet with little debt.

Double the returns of a deposit account with potential for inflation-beating growth sounds too good to be true. But what of the risk to capital? Protecting the value of the original investment is the deposit account saver's key priority. No one can deny the risk of share price falls. We have just seen some recent market mayhem (though Shell recovered very quickly) and Shell may fall again in the coming months as the oil price softens. Also who can forget the BP oil leak which halved the share price practically overnight (Shell is dealing with a North Sea oil spill as we speak although thankfully on a much smaller scale).

All true but I would argue that the deposit account capital is not as safe as it looks. In fact savings there are suffering rapid erosion is real term and likely to continue to do so as interest rates are held below inflation for several years. At least by buying Shell or similar shares with a proportion of their capital the investor has benefiting in some way from rising energy prices. The risks can be reduced in two ways - buying up shares in stages so that the buying prices are averaged out and diversifying (buying a mixture of shares) through a energy fund or energy ETF, though watch out for charges.

Monday, August 8, 2011

Can you avoid Ryanair debit card charges?

I asked in my last post (Ryanair's new policy) if anybody had a way round the handling fees they charge on debit and credit card transactions. To recap these are the "sting in the tail" - the £6 fees they charge when you get to the end of the booking process and which are payable for each and every flight. So when I am booking a flight to an from Spain with my kids the charge is £48 for the privilege of paying for the flights I have booked.

Well one reader does not pay the charges because he has a Caxton FX debit card. He just pays Caxton a single fee of £1.50 per booking. I am sure most readers who use budget airlines are on the ball with this option and I am slightly embarrassed that it has taken me so long to get round to it particularly as I book a lot of flights with Ryanair.

On the face of it it definitely looks worth getting one of these cards or something similar. Looking at Caxton's site however it appears that new applicants will be issued with Visa cards and the Ryanair website it says their £6 fee is waived for "Mastercard prepaid debit cards". It would thus appear that Caxton cards, although good in lots of other respects, will no longer be good for saving the handling charges.

Searching online for these reveals a lot of alternatives to Caxton's card:

But all of these have their own fee structures and pros and cons. Do your research.

One thing to be aware of is that Ryanair will only accept payment in the currency the fare is quoted in. So if you are buying in the UK, you will be quoted in sterling and your card will have to be denominated in sterling (a lot of prepaid cards are in € or $ for travelling).

Is it that simple? Well Ryanair are famous for their extra charges and I can't see them happily watching everyone switch over to paying by prepaid cards. They have moved the goalposts once already (the Visa Electron always used to be their "free" option for payment). Also I have read some blog posts about Ryanair refusing Mastercards that meet their stated criteria:

Someone suggested this could be because the card name did not match the name of the lead passenger. Others suggest logging out of Ryanair, deleting your cookies (internet options) and starting again. So if you get a pre-paid Masrercard (and I think I will because the savings are so great for a regular booker) be prepared to continue to have to outwit our friends at Ryanair.

Monday, August 1, 2011

Ryanair's new policy (it's good for once)

We’ve all been wound up by Ryanair over the years haven’t we? The luggage Nazis who patrol the queues looking for oversized hand-luggage, the unseemly stampedes for a seat, the grinning mug of Michael O’Leary as he announces some other way of making his customers suffer and those enticing low fares that balloon when the extras start totting up.

A typical example: Ryanair criticised over New Year advert. Ryanair ads suggested we all spend New Year’s Eve celebrating in Dublin using their super low £7 fares. Just one problem with that – the fares were for January and February so the earliest a reveller could arrive in Dublin would be as the clearing up began.

But now for something completely different. In praise of Ryanair! They now quote their fares with taxes and charges included. There are a few extras like the “EU 261 levy” and an online check-in fee but basically a flight of £50 costs more or less £50. Actually there is the other hidden charge which is a complete wind-up – the charge for using a credit or debit card which multiplies with every flight you book and bears no relation to Ryanair’s actual transaction costs. But all the airlines do that don’t they (and some other online merchants).

I use a Ryanair a lot and there are good reasons – they are in my experience less prone to delays than other airlines and, even when all the extras are added in, they are often the cheapest. One thing I have noticed is that it does NOT always pay to book a long way in advance. It is often the case that waiting until nearer the time (but not too near) is cheaper. I am also told that it is also wise to delete your cookies that track your previous searches and also affect the prices you are quoted (anyone know if that’s true?).

A final plus point for Ryanair – they make it free to print out your own boarding pass and skip check-in at the airport. Judging by some of the long and slow-moving queues I have seen at Malaga and London recently , that is a blessing.

From our website this week: Guide to Spanish Double Tax Treaty

OctoFinder Blog and ping http://www.feeds4all.nl Spanish Insight - Blogged